THE rise in individual inequality that we have seen is due in part to the rise in globalisation. When most businesses were local, the creation of wealth by a business was limited by the geographic range in which the business could operate. But nowadays even a relatively small business can go from local to national and then global operation in a short amount of time. Fortunes can be made by providing goods and services at a low price to a global market of 6 billion people.
Communication costs and computation costs will continue to drop for the foreseeable future, and we will continue to see new billionaires being created as an inevitable side effect of this technological trend. Ocean voyages, railroads and the telegraph, along with the businesses they enabled, created vast amounts of wealth, so we should expect the same from modern communications technologies.
Overall, I would say that this isn't a bad thing. The rich have gotten rich because they have provided something that everyone else valued, and the world as a whole has grown wealthier. Historically, wages have tended to reflect productivity growth in the long run, and the same will likely be true this time around.
Other active discussions about this question:
Daron Acemoglu our guest wrote on Jan 23rd 2011 16:51 GMT
Scott Sumner our guest wrote on Jan 24th 2011 14:21 GMT
Konstantin Sonin our guest wrote on Jan 22nd 2011 20:15 GMTThe "haves" have a strong incentive to protect their status(4)
About our guest
Hal R. Varian is the Chief Economist at Google. He started in May 2002 as a consultant and has been involved in many aspects of the company, including auction design, econometric, finance, corporate strategy and public policy. He previously academic appointments at the University of California, Berkeley in three departments: business, economics, and information management. He received his S.B. degree from MIT in 1969 and his MA and Ph.D. from UC Berkeley in 1973. Professor Varian has published numerous papers in economic theory, econometrics, industrial organization, public finance, and the economics of information technology and wrote a monthly column for the New York Times for 7 years.
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There also seems to be a distinct advantage in being good at publicity. Given the enormous range of choices we face every day, there is a tendency to go for the biggest/best known brand.
This means that Apple may produce technically inferior products but still reap obscene profits, and the network effects of software means that it is extremely difficult for competitors to enter the market.
In a sense choice may be spoiling the perfection of the markets.
The only problem: Thousands of US middle layer workers have been and continue to be displaced by the offshoring of their positions. As a result, the US middle class is rapidly shrinking, which is killing our economy. To continue to build foreign economies by dismantling the US economy is a form of self-destruction. Even the rich will eventually feel the pain.
Your analysis completely disregards the growth in wage inequality within individual firms... How does innovation and technology explain the growth in CEO pay from 30x to 130x the avg worker over the last 30 years? Would you argue that the inequality that the inequality between Main St. and Wall St. is attributed to innovation and productivity or rather regulatory capture?
No idea what point you're trying to make. Those that are not equal are now equal?
You don't include the ways in which this removes incentives to improve communities, as decision-makers become removed from the communities their decisions impact. We will need a new, global social consciousness before globalization can truly shine.
Supply requires demand, which is limited by access to wages (and property law) in current markets. Unfortunately there is a bit of a prisoner's dilemma: all businesses might be better off if higher wages were paid on average, increasing money available to those consumers with unmet demand, but each business would be worse off if they unilaterally raise wages. Say's law: excess supply (as evidenced by global unemployment) means unmet demand, but currently the unmet demand can not be met due to inefficiencies (which are evidenced by capital profits), most likely caused by, or at least exasperated by, unequal access to the medium of exchange.
Bogus assertions and fawning, truckling lickspittle-drenched valentine to the plutocracy. Doubleplusgood duckspeaking here, Hal.
Very poor analisys, unproper of this pages. As a logo for ipad of google the "technology amplifying talent" thing, seems catchy I agree, but is no good when used to describe the economic trends and the shifting of purchasing power to the upper few.
What about information opacity, overpriced services, unchallenged dominant positions, overderegulated markets, free flow of profits to fiscal paradises or understaffed, underpaid controllers? Nothing to do? Just technology and talent?
Mmmmmm... Varian must have been employing his own talent doing something else while writing his three pharagraphs; evaluating the tanine levels of a Chateau Margaux, probably.
Technology is the new imperialist tool. The imperialists are always the same, those who have access to resources and seek to control more. In most cases, they also have access to new technology first and seize more access than others. You could cite the notable examples of the rising up from rags stories of people who made success with their innovative and revolutionary ideas. But even the storm disperses a few seeds from those trees that it holds sway on. There are the new crops that have sprung up on their own and grow... soon to be part of the new elite.
The bearing of talent to inequality is highly skewed after the initial phase of growth. Talent sure gives a good foothold in the ladder to riches. The instances of technology amplifying talent is few and far between, only the publicity and glamour that it generates makes it look so good. Indeed, there must be so much talent that has not got its due which I cannot recount because they have not come to light and gone wasted in the bylanes of history.
What are the chances those in the higher echelons of organization could earn 100times more than the minions that work for them? What are the chances that the rewards, privilege and perks cornered by these Elite is so much disproportionate? Quite high indeed.